New Zealand’s economy, like many others, has been significantly impacted by global events such as the COVID-19 pandemic hangover (inflation, supply chain shocks and high interest rates). These events have led to an increase in distressed M&A activity as healthy companies seek to acquire those in financial distress. Distressed M&A is not without its challenges. The uncertainty of the distressed company’s true value, potential liabilities, and the risk of subsequent insolvency proceedings can deter potential acquirers.

The Supreme Court has today released its decision in Yan v Mainzeal Property and Construction Limited (in liquidation) [1] (Mainzeal), upholding the Court of Appeal’s finding that Mainzeal’s directors were liable for insolvent trading and ordering Mainzeal’s directors to pay $39.8 million plus interest, with the liability of three of the four directors capped at $6.6 million plus interest.

MinterEllisonRuddWatts acted for the liquidators in the Mainzeal litigation.

Significance of decision

A recent amendment to the Goods and Services Tax Act 1985 has clarified that voluntary administrators are personally liable for the GST of companies under their administration.

2020 was a Jekyll and Hyde year for insolvency, both for New Zealand and our closest neighbour, Australia.

In our 2019 Litigation Forecast, we said 2020 would see two significant senior court decisions on directors’ duties engaged on insolvency.